Self-storage operators and customers sometimes have misguided notions about offering tenant insurance. Operators don’t always understand how these programs work or the benefits they provide to the business, while renters often believe that insurance for their stored belongings is unnecessary. To help you see the value for both parties, let’s bust five common misconceptions about tenant-insurance programs.
Misconception 1: It’s the Same as Renters Insurance
Outside the self-storage industry, the word “tenant” typically refers to someone who leases an apartment or commercial space from a landlord. “Renters insurance” is designed to help protect those renting a dwelling or using a rented space for business purposes.
In the storage business, the tenant is the person who rents a unit. Via the signed rental agreement, the facility operator relinquishes all liability for the customer’s stored belongings. Tenant insurance reduces the property owner’s liability exposure in the event of a loss to a customer’s stored goods. It also provides a mechanism for the renter to file a claim for settlement.
Misconception 2: It’s Better to Insure Stored Items Through Homeowners or Renters Insurance
There are several reasons for why this is simply untrue. First, not all self-storage tenants have access to homeowners or renters insurance. Many are in a state of transition without a permanent address, or they don’t have the credit history to afford this kind of coverage. Tenant insurance ensures your renters have access to the coverage they need for their belongings.
In addition, renters and homeowners insurance deductibles are often too high to warrant filing a claim if damage occurs. For example, the basic deductible for homeowners policies is $250, but people often choose higher deductibles from $500 to $2,500 to reduce their monthly premiums. Considering many self-storage rental agreements restrict customers to storing up to $5,000 worth of goods, tenant insurance is often the smarter option.
Finally, many tenant-insurance programs offer coverage for perils that are specific to self-storage but not covered under all homeowners or renters policies. For example, falling objects, building collapse, and the weight of ice, sleet or snow aren’t typically covered under basic-form homeowners policies. In contrast, these items are all covered under tenant insurance, no matter what policy form a customer has. In addition, coverage against perils such as rodents, mold, mildew and flood are offered by select tenant-insurance programs. Some even offer other protections such as compensation for a substitute rental space or debris removal as well as coverage for damages sustained in transit within 100 miles of the facility.
Misconception 3: Operators Are Responsible for Filing Tenant Claims
While help from facility staff will result in a more thorough, accurate investigation, self-storage operators aren’t responsible for adjudicating a claim. Here’s how the process typically unfolds through a tenant-insurance program:
- A tenant discovers a loss and notifies the self-storage operator.
- The operator instructs the tenant to notify their insurance administrator to file a claim.
- The adjuster assigned requests any necessary documents from the operator. A facility staff member files an incident report and photographs the damaged items.
- The tenant photographs their belongings and provides necessary documents.
- The adjuster investigates the claim and notifies the tenant of the result.
- If the loss is covered, the tenant receives a settlement check.
Misconception 4: Tenant Insurance Is the Same as a Tenant-Protection Plan
It’s almost impossible to discuss tenant insurance without mentioning tenant-protection plans, which are a different type of product. Both help make a self-storage customer whole after a loss, but they’re distinct in two very important areas.
Regulation. Tenant insurance is regulated by each state or district’s department of insurance, meaning self-storage operators must abide by different rules depending on their location. They’re licensed to sell tenant insurance to their customers, but that doesn’t mean they can adjust claims. The product administrator handles all claims with licensed adjusters.
In contrast, a protection plan isn’t considered insurance and, therefore, isn’t regulated. However, because each state has different insurance legislation and practices, self-storage operators that offer a protection plan should use caution in the language they use when selling, describing and administering the product.
For example, there was a lawsuit in California brought by tenants who argued their protection plan was insurance. However, because the state statute defined insurance as “a contract whereby one undertakes to indemnify another against loss, damage or liability arising from a contingent or unknown event,” the court ruled that protection plans aren’t insurance and, thus, not regulated under the same governing bodies.
A similar suit in New Mexico had a different result. New Mexico defines insurance as “a contract whereby one undertakes to pay or indemnify another as to loss from certain specified contingencies or perils, or to pay or grant a specified amount or determinable benefit in connection with ascertainable risk contingencies, or to act as surety.” As a result, the protection plan in this case was deemed insurance, and a fine was levied against the operator.
Liability. Self-storage operators fought long and hard to distinguish themselves from warehouseman by arguing they didn’t have care, custody and control of a person’s belongings while stored in their unit. They effectively fought and won the right to remove liability from the facility and put it on the tenant once their items were stored. Tenant insurance allows operators to retain that exemption from liability while providing customers with coverage should a loss occur. The arrangement allows both parties to walk away satisfied.
Under a protection plan, operators agree to retain some liability for a tenant’s belongings in exchange for additional “rent.” Because of this, they’re responsible for the resolution of a tenant’s claim to a certain extent.
Misconception 5: The Cost to Start a Tenant-Insurance Program Isn’t Worth It
On the contrary, there’s really no out-of-pocket expense for self-storage operators to start administering a tenant-insurance program. With no initial investment other than licensing fees, the revenue generated is pure profit. Let’s look at some of the ways you can benefit.
Revenue. Tenant insurance generates ancillary income for a self-storage business by redistributing a portion of the collected premium back to the operator. The amount you receive can differ based on the program and several factors:
- The number of facilities you have
- The states in which you operate
- Whether you already administer tenant insurance or protection and your loss history
- The coverage options you offer
- Whether you’re taking any risk when a loss occurs
Protection from recourse. After experiencing a loss, self-storage tenants don’t typically treat facility staff with patience and compassion. Instead, they’re often upset, frustrated, stressed or angry. To whom they direct those emotions depends entirely on the type of program you have in place. With tenant insurance, you can apologize for the loss and immediately direct them to your administrator.
Under most tenant-insurance programs, the renter will receive attention from a licensed adjuster who’s trained to deal with people who’ve experienced a loss. Tenants who are satisfied by their settlement and the experience with their adjuster generally don’t direct negativity toward the self-storage business. In many cases, they’re even likely to continue renting at that location.
If an adjuster isn’t able to satisfy a claim, the customer may file a complaint with your state’s department of insurance or Better Business Bureau. They may even pursue a remedy through a small-claims suit. In these cases, your program administrator should handle these complaints for you, allowing you to focus on your business.
Risk mitigation. Tenant-insurance administrators can also provide information to help you mitigate future risks. Partner with a provider that’ll review past losses and help you take action to prevent similar incidents from occurring again. Not only will this limit future claims, your being proactive demonstrates to tenants that you care about them and their belongings.
Compliance. Similarly, good tenant-insurance administrators will provide support to ensure you’re in compliance with all applicable state statutes. Regulations continually evolve, so most providers have a team dedicated to tracking changes and staying up to date on state requirements.
Offering tenant insurance is much more than simply helping customers obtain coverage for their stuff. Partnering with a reputable provider will help support daily business operations, provide ancillary income, and protect against liability and recourse, all while helping your self-storage customers shield themselves from the unexpected.
Brynn Lee is director of communication for Indianapolis-based Xercor Insurance Services, a tenant-insurance agency that serves the self-storage industry. In her role, she oversees all strategic and internal communication initiatives. To reach her, contact [email protected].